Franklin Financial Network (FSB) Q3 2019 Earnings Call Transcript

Franklin Financial Network (FSB)
Q3 2019 Earnings Call
Oct 24, 2019, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Franklin Financial Network Incorporated's 2019 third-quarter earnings conference call. Hosting the call today from Franklin Financial Network is Mr. Myers Jones, CEO of Franklin Financial Network Incorporated. Please note the Franklin Financial Network earnings release, and this morning's presentation are available on the Investor Relations page of the Bank's website at www.franklinsynergybank.com.

Today's call is being recorded and will be available for replay on the Franklin Synergy Bank's website. Before we begin, Franklin Financial Network does not provide earnings guidance or forecasts. During this presentation, we may make comments that may constitute forward-looking statements. All forward-looking statements are subject to risks and uncertainties, and other facts that may cause actual results, performance or achievements of Franklin Financial Network to differ materially from any results expressed or implied by such forward-looking statements.

Many of such factors are beyond Franklin Financial Network's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in the Franklin Financial Network's most recent Annual Report on Form 10-K. Franklin Financial Network disclaims any obligation to update or revise any forward-looking statements in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G.

With that, I am now going to turn the call over to Mr. Myers Jones, Franklin Financial Network's CEO. Sir, you may begin.

Myers Jones -- Chief Executive Officer

Good morning, everyone and thank you for joining this morning's call to review our third-quarter 2019 results. We appreciate your continued interest in our company. I'm here this morning with Chris Black, our chief financial officer. I'd like to give a brief overview of the quarter, and then, Chris will review the detailed financial results.

I'm proud to report that our entire team of employees from each area of our company has continued to execute our business plan, and we are creating a stronger and more profitable franchise. Our company's strength continues to be our team, from our originators to our frontline branch folks and, our support group, and I could not be more proud of the attitude and excellence they show each and every day. As evidenced by this quarter's net interest margin expansion, we continue to benefit from the results of our balance sheet rotation and optimization strategies, which continue to unlock the value of our core bank. Although the financial benefits of the balance sheet shift has been powerful, our bankers' daily focus remains on driving profitable growth through our core customer relationships.

As expected during the third quarter, total loans held for investments declined almost 12% annualized, driven by the SNC portfolio reduction of $87 million. Core deposit growth was more than 28% from the same time last year, as we continue to focus on growing retail deposits and the reciprocation of local government deposits. Strong growth in the core franchise allowed us to rotate away from securities and wholesale funding, as we further de-leverage non-core assets and liabilities. We achieved that growth while also maintaining discipline on expenses.

The result was a net interest margin expansion of 14 basis points from last quarter and 28 basis points from the third quarter last year, as well as, continued growth in pre-tax pre-provision profit, which increased 23% when compared with the third quarter of 2018. We also maintain strong capital ratios and grew tangible book value per share by nearly 15% from this time last year, while at the same we're turning to our shareholders' capital by increasing our stock dividend by 50%, and continuing our share repurchase program. Now, I'll turn it over to Chris to discuss the financial results in more detail.

Chris Black -- Chief Financial Officer

Thank you, Myers and good morning everyone. I'll be referring to the quarterly earnings presentation that's available on our Investor Relations page. On Page 2, we list a number of specific financial highlights and results to summarize the quarter. In line with our guidance, we experienced the reduction in total loans during the third quarter, as we further reduced the SNC portfolio by almost $87 million, which now represents 5.2% of loans held for investment.

This conscious effort to bring the SNC portfolio to lowest concentration of loans held for investment since the second quarter of 2018, represents our commitment to shedding non-core, non-relationship items from our balance sheet. In addition to the SNC reduction, we further shrunk our securities portfolio by over $221 million during the quarter, which now represents 16% of assets, down from 32% a year ago when the securities portfolio stood at more than $1.3 billion. Core deposits, which consist of our retail and reciprocal deposits grew by almost $156 million during the third quarter, or as Myers said earlier, more than 28% when compared with the same time last year. Since the second quarter of 2019, we further reduced our broker deposit portfolio by nearly $110 million, which has solidified our continued reduction in non-core funding, as broker deposits have declined by nearly $300 million since this time last year.

As a result of the focus on core deposit growth and the continued strategic reduction of non-core assets and liabilities from the balance sheet, our net interest margin expanded 14 basis points from last quarter to 2.98%. Our cost of deposits declined 16 basis points from last quarter to 1.9% in our contractual yield on loans held for investment declined four basis points from last quarter to 5.28%. Our balance sheet rotation optimization strategies along with tailwinds from the inverted yield curve have allowed us to expand our net interest margin in what remains a low and difficult interest rate environment. As mentioned in previous quarters, our intention is to continue to opportunistically reduce the SNCs in our loan portfolio that we consider to be non-relationship based.

This may occur in a number of ways: Repayment, M&A activities, runoff, or sales. We want to continue to be wise and judicious in balancing risk and return for our shareholders as we execute this strategy. Going forward, we expect -- we would expect to see continued balance sheet optimization and SNC reductions, and look for overall near term loan growth in the mid-single digits with expectations for low double-digit core customer loan growth. Our bankers are focused on and incentivized to generate quality core banking relationships.

This fundamental banking strategy will drive our profitable growth into the future. Our core efficiency ratio for the quarter was 58%, an improvement from the 60% recorded in the second quarter, and our core non-interest expenses were flat relative to the second quarter of this year, and up about 6% year over year, as we remain committed to investment in our business. We are pleased to announce that our board of directors has also authorized a 50% increase of our quarterly dividend of $0.06 per share. We will continue to evaluate our best options for the deployment of capital through organic growth, share repurchases, and strategic M&A, and assuming favorable market conditions, going forward, we will likely continue to execute our share repurchase program.

On the right side of Page 2, you will notice some of our key performance metrics for the quarter. The third quarter of 2019 GAAP reported diluted EPS was $0.75 and diluted core EPS is estimated at $0.72. Non-core items for the quarter included in non-recurring FDI assessment credit of approximately $750,000, gain on sales of securities of $1.5 million, and loss on sales of loans of about $1.75 million. These result in core return on assets of 108 basis points.

Core return on tangible common equity of 11.4%, and a core efficiency ratio at 58%, as I mentioned earlier. Each of which represent encouraging and positive improvements from last quarter and from the third quarter of 2018. As already mentioned, our NIM on an FTE basis is 2.98%, with quarterly expansion of 14 basis points. These metrics represent meaningful progress toward the immed -- intermediate performance objectives we laid out back in May, which strive for a sustainable return on assets of 120 basis points, return on tangible common equity of 14%, and a NIM of greater than 3%.

We are by no means satisfied with these results as a destination but are proud of the work done by our entire team to have achieved these important milestones along the path to creating sustainable performance and core earnings momentum. Turning to Page 3, key long-term profitably trends are shown. Our net interest income has grown at a 38% annualized rate during the period from 2013 to 2018 is up, 6.4% from the third quarter of last year, driven by that 28-basis-point expansion in the NIM. This is largely a result of our continued balance sheet rotation optimization, which included this quarter's deleveraging of our non-core funding and securities portfolios, which resulted in overall balance sheets shrinkage of approximately $250 million quarter over quarter.

When considering the previously mentioned FDIC assessment credit, core non-interest expenses were flat from last quarter and were up a controlled 6% year over year. Our core efficiency ratio also declined, as I said, 58% further demonstrating our commitment to continuing to work hard to control expenses while driving strong core franchise growth. Page 4 illustrates the trends over time of our earnings per share and tangible book value per share metric. Our estimated diluted core EPS of $0.72 for the third quarter, represents a $0.02 per share increase from the same time a year ago.

Furthermore, we continue to experience strong growth in our tangible book value per share, which is up 14.8% year over year to $26.61, further demonstrating our internal capital generation capacity, while continuing to unlock the value of the core bank. Importantly, these actions have further reduced the amount of our capital base as vulnerable to bond market price volatility. Turning to Page 5, you can see our loan portfolio composition and growth profile. Total loans held for investment declined by $84 million this quarter, driven by the previously mentioned $87 million reduction of the SNC portfolio, as expected, non-SNC loan growth was essentially flat due mainly to construction paydowns during the quarter.

Our team remains focused on core customer loan growth, loan diversification, and credit discipline. As I mentioned previously over the intermediate term, we expect it to be low double-digit core loan growth. You can also see on the right-hand side of the page their concentration ratios continue to remain manageable and within our targeted internal guidelines, driven primarily by our increased scale, granular credit administration processes, incremental loan diversification, and robust capital generation. In the appendix, we have included information on our Shared National Credit and healthcare portfolios.

We remain highly focused on the size and composition of our SNC portfolios evidenced by this quarter's reduction to near 5% of loans. We expect to see the size of this portfolio continue to decline, as we seek to eliminate non-core, non-relationship banking activities. On Page 6, you will see the change in mix of our deposit funding from a year ago. During the third quarter, we grew our retail deposits by more than $225 million.

While our retail deposit growth was solid throughout our business in the quarter, it was also somewhat lumpy, and we are not anticipating the same level of quarterly growth in the near term. We expect to continue to gradually leverage our loan-to-deposit ratio while we made progress on the further growth build-out of our deposit gathering and sanitization program. We are optimistic about our ability to successfully enhance the growth of our core deposit franchise. We are realistic in our understanding that this process will be measured in quarters and years, as it's both a structural change and a cultural change for our team.

Shown on Page 7, you can see that we continue to maintain a well-capitalized liquid balance sheet, which is well-positioned to support our anticipated loan growth in coming periods. We maintain very strong regulatory capital ratios, which are supported by our strong internal capital generation. As indicated previously, we are pleased to announce the 50% increase in our quarterly dividend at $0.06 per share. Turning to Page 8, I'll review our asset quality trends.

As disclosed last quarter, the company had allocated a specific reserve for a single SNC relationship in the amount of approximately $2.2 million, which then represented the total remaining relationship balance. During the third quarter of 2019, the company determined that excluding a principal payment of nearly $500,000, the balance of this relationship should be charged-off, resulting in the recognition of a charge-off of approximately $1.7 million this quarter. Given that the specific reserve had been established during the second quarter of 2019, there is no further potential negative financial impact related to this relationship. Further, we have determined to hold our allowance for loan losses steady from last quarter at 95 basis points of loans held for investment despite the 12% annualized decline in loans.

The allowance level this quarter is due to a variety of factors, including an uptick in and the developments relating to our classified assets, as well as, anticipation of changes related to CECL. Classified assets to loans held for investment stand at 1.77%, an increase from 1.45% last quarter causes us to take a cautious stance, as we continue to evaluate substandard loans in our portfolio just as we always do. We also continue to monitor all of our asset quality metrics, including our loans that are 90-plus days delinquent, which stand at 2 basis points of total assets, as well as, our non-performing assets, which stand at 8 basis points of total assets, both of which are at or very near cycle lows. Our allowance for loan losses covers our non-performing assets at a ratio of 8.5 to one, up from 4.1 to one at the end of last year.

It is also important to note that we have no bank-owned real estate or repossessed assets on our balance sheet. As a real estate focused bank, this is a strong indicator of the quality of the portfolio that we have built. Now, I just want to spend a moment discussing CECL, which we plan to implement on January 1st, 2020. It will be highly influenced by macro -- macroeconomic forecasts and our loan composition at that point in time.

We are in the final stages of validating our model in which we anticipate using an 18-month forecast period with reversion to historical loss rates. Our current visibility indicates that our allowance for credit losses will likely be very close in magnitude to today's current allowance for loan and lease losses, with perhaps slight variations due to changes in SNC loan balances, as well as, a fairly short duration of our residential construction portfolio. We plan to provide a full update and disclosure during January's earnings call. Now, I'll turn it back to Myers for some closing remarks.

Myers Jones -- Chief Executive Officer

Thanks, Chris. Again, I'm very proud of what this franchise has accomplished during the quarter. Our strategy continues to take hold, as we continue to emphasize core customer growth and our deleveraging from non-core asset and liabilities is driving margin expansion, which is thereby leading to improved returns. The bank maintains leading positions and some of the best banking markets around.

Based on the FDIC's Deposit Market Share Report as of June 30, 2019, we are No. 1 in Williamson County, No. 6 in Rutherford County, and have a growing presence in Davidson County. Taken together, we are the sixth-largest bank in the Nashville MSA, and we continue to grow and gain scale.

We will continue to execute our strategic initiatives and focus on organic core profitable growth. We remain committed to and focused on creating long-term shareholder value. I'll turn the call over to the operator to see if there are any questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Stephen Scouten with Sandler O'Neill. Please go ahead.

Stephen Scouten -- Sandler O'Neill

Hi, good morning, everyone.

Myers Jones -- Chief Executive Officer

Good morning.

Chris Black -- Chief Financial Officer

Hey, Steve.

Stephen Scouten -- Sandler O'Neill

Hey, congrats on the quarter, it's nice to see a lot of these strategies that you guys have been working hard on kind of coming through this quarter. So well done. Curious kind of along with the balance sheet optimization strategies, if there is some more to be done here or with where you've now gotten the loan-to-deposit ratio and securities as a percentage of assets, and so forth, if this is a more static place for the bank, and we'll see more kind of incremental improvement from here? And then also around that, with the timing of the balance sheet optimization that was done in 3Q and the lag effect upon 4Q, if we'll see some incremental benefit there?

Chris Black -- Chief Financial Officer

Hey, Stephen. Thanks, I appreciate it. This is Chris. So, I think that the lion's share, I guess of the optimization rotations, financial engineering, however, you want to look at it, that's largely been done, like I said earlier, I think we'll continue to leverage the loan-deposit ratio incrementally, but you know, this point in the cycle as well, we'll be cautious with that.

I think, you know, also, I had mentioned the -- or maybe I didn't mention it, but part of what we were optimistic that I think we hold -- we should be able to hold it fairly steady on the margin going forward, maybe, we'll have to see how the Fed moves and how the markets respond to that, and what competition looks like, particularly on the deposit side. But in terms of loan yields, we've done, I'd say, our bankers have done a pretty incredible job over the past couple of years in terms of structuring floors, pretty much standard in most of our loan documents, and so, that's starting to show through, as we've had two cuts, which is evidenced by the 4-basis-point decline in loan yields. So, we'll have to see how -- it's more of a matter of competition, I would say on the deposit side. So yeah, I think the summary is, we're largely done with most of the movement on the balance sheet, maybe the securities tweak a little bit more, maybe we tweak here a little bit -- here or there a little bit more, but I think we're getting set pretty well on our course.

Stephen Scouten -- Sandler O'Neill

OK. It looked like some of -- maybe some of the securities' activity was later in the quarter though. So, I guess, would you expect to see some average earning assets shrinkage next quarter as a result, but maybe some incremental benefit in the margin given the timing of the securities' transactions or is that?

Chris Black -- Chief Financial Officer

Yeah, I mean that could happen. I think that could happen a little bit. We'll have to see, I think, we've had a reasonable balances come on toward the beginning of the quarter as well from a loan perspective. Like I said, we're thinking the guidance of mid-single digit for total loans annualized in the fourth quarter, and probably a little bit higher than that from a core customer basis, but so, I think averages are -- have been bolstered a little bit toward the front end of the fourth quarter.

So, I think that should mitigate some of the securities' declines as well.

Stephen Scouten -- Sandler O'Neill

OK. And then you touched on the NIM there a little bit, but can you remind us if you have this data handy, kind of the percentage of your loans that are tied to prime and you mentioned the floors. But do you have any data about what percentage are at their floors currently are close to them that some sort of insight there that would be helpful to think about loan yields moving forward?

Chris Black -- Chief Financial Officer

Yeah. So, the tied to prime, I'm not -- I can't tell you the exact percentage tied to prime, I'd say 55% to 60% are variable, and a high majority of those are prime but I don't know the exact number percentage that are actually prime. One, and then on the floors, I'm not sure -- well, let's look at that, Stephen, we haven't really disclosed that before, but it's, I think, you see coming through in the numbers. We were expecting, we hadn't really said anything before, we want to see how it worked in practice but it -- that's kind of a testament, I'd say, to our team and the value of our customers place on the services we provide.

Stephen Scouten -- Sandler O'Neill

Sure. No, for sure. And maybe one last thing for me, just to kind of tie-up one number on that FDIC assessment, I guess $750,000 benefit you got, and then, does that put the run rate around $400,000 moving forward? Or would it go back to that kind of $650,000 level we saw in 2Q?

Chris Black -- Chief Financial Officer

Yes. So, you know, as with the government, you never totally know, and so, it was a little bit of a surprise. I think we got the check pretty much on the last day of the quarter almost, and we're expecting a little bit more to come in, I don't know if you've heard that from the other banks. But we're expecting a little bit more to come in this quarter.

So, I'd say $400,000 feels a little bit low to me, but $600,000 would be high, so maybe, I'm planning on something in the middle of that, and then, we'll actually see what happens.

Stephen Scouten -- Sandler O'Neill

Perfect, thank you. And congrats, again, on the great quarter, guys.

Myers Jones -- Chief Executive Officer

Thanks.

Chris Black -- Chief Financial Officer

Stephen.

Operator

Our next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.

Brett Rabatin -- Piper Jaffray -- Analyst

Hey, guys, good morning.

Myers Jones -- Chief Executive Officer

Good morning, Brett.

Brett Rabatin -- Piper Jaffray -- Analyst

I wanted to go back to the SNC reduction. Can you just give us some color on how those came off the balance sheet? Have they refinanced away the company? So what -- maybe give some flavor on the reduction that you had in the third quarter.

Chris Black -- Chief Financial Officer

Yeah, Brett. So, it was a blend of the two. I don't have the percentage of that in front of me, but we had some -- a mixture, we had some pay downs, and some notably, as we flagged I think last quarter, some of those entities are using the interest rate environment, and just the overall competitive environment search for yield however you want to think about it to use facilities to lever up, which is a convenient exit point for us out of any of those situations. So, I would say, we're not just seeing that in the SNC portfolio.

We're seeing that in different pockets around our portfolios. So, we're cautious and mindful of that, but there were definitely a good number of sales, and hence, some of these were brought on with slight premiums, and some of them just market-wise trading with variable rate in nature had some interest rate marks to them, but that generated the $1.7 million, $1.8 million loss on loans.

Brett Rabatin -- Piper Jaffray -- Analyst

OK. OK. And it sounds like you're getting close to having done what you want to do with the SNC book. Well, I guess, I'm just curious to make -- I want to make sure I understand kind of what you guys view as core from these levels, and how much more, if any, you want to reduce the SNC book from here?

Myers Jones -- Chief Executive Officer

This is Myers and my goal is to get that portion of the portfolio down to 4% or less, which obviously, becomes much less material. So, we are getting close to that number at 5.2% at the end of Q3. But we still have a reduction goal in mind.

Brett Rabatin -- Piper Jaffray -- Analyst

OK. And then the other thing I wanted to ask about was capital. I mean, you guys have optimized the balance sheet and now your capital levels are higher than they were last year by a significant margin. I know you just increased the cash dividend.

What do you plan on doing with the capital here as it's built?

Chris Black -- Chief Financial Officer

Yeah, Brett. It's Chris. So, I think, good question. You know, the first is that we felt like the bank was -- the model of the bank was somewhat out of balance.

And so I think, it's coming more into balance, particularly at this point in the cycle, last year, roughly 8% TCE ratio, this year 10% in ROAs and ROEs are coming much more in line. As I said, not where we want them longer-term, but coming in line showing progress. And so I think, one of the main constraints that we have from a capital perspective first is concentration ratios. So, we're very mindful of those.

And so we do -- you know, we're very cautious about, in terms of any kind of repurchase or you know, massive share repurchase program. That's one. But I think that we have had and continue to have discussions with other ways, whether it's team lift-outs or producers who would come on board and make a pretty strong impact, and having that capital and kind of deleveraged available for those folks is also something that we've been working through. So, I think there have been so many changes over the last nine months that we're really cautious to send too much capital back to shareholders or to over lever just to squeak out some incremental returns that we would view more non-core.

Hopefully, that answers the question for you.

Brett Rabatin -- Piper Jaffray -- Analyst

Yeah. No, that's helpful. And just one point of clarification. I want to make sure I have this right.

So, you're talking about low double-digit loan growth, is that inclusive or exclusive of what you might have left to do with repositioning the balance sheet?

Chris Black -- Chief Financial Officer

Yeah, so that's exclusive of that. So, I think visibility into the fourth quarter total loans, including SNCs and any other non-core type of loan, that's the mid-single-digit. But I think, we're looking at least near term customer -- core customer growth of the low-double-digits.

Brett Rabatin -- Piper Jaffray -- Analyst

OK. I thought I heard that. OK, great. I see the margin expansion and thanks for all the answers.

Chris Black -- Chief Financial Officer

Absolutely. Thank you, Brett.

Operator

[Operator instructions] Our next question comes from Tyler Stafford with Stephens. Please go ahead.

Tyler Stafford -- Stephens Inc. -- Analyst

Hey, good morning guys.

Myers Jones -- Chief Executive Officer

Good morning.

Chris Black -- Chief Financial Officer

Hey, Tyler.

Tyler Stafford -- Stephens Inc. -- Analyst

Hey, nice quarter. I was hoping you guys, Chris, could start maybe or Myers, just around the details of the substandard increase, what you can share there? How many loans that was? What types of loans, etc.? Thanks.

Myers Jones -- Chief Executive Officer

Well, Tyler, there -- let me first say that the increase in classified assets was internally driven, it was a result of our relationship managers, credit admin or internal loan review. It was not driven by any third party, outside party. So again, we -- we're very diligent in monitoring our entire portfolio. So, we're looking at it very regularly and taking what action we deem necessary.

It was not performance-related. As you can see, our non-performing numbers, our delinquency numbers continue to be very, very good. So again, I think, it's an internal -- early recognition of some potential issues that we want to monitor. So, we put them on the radar screen.

Tyler Stafford -- Stephens Inc. -- Analyst

Can you tell us how many loans it was? Or the chunkiness of the increase?

Myers Jones -- Chief Executive Officer

Well, I think I'm not exactly certain from an absolute number perspective, but there were multiple customers. And again, that's a sector that you have loans going in, you have loans going out. Every quarter, we look at the migration analysis of anything that's rated below par in our portfolio. So, we look at the various AQRs as they move up and down, but not necessarily look at them individually.

We look at them cumulatively.

Tyler Stafford -- Stephens Inc. -- Analyst

OK. Were any of those SNCs? I apologize if you said that earlier and I missed it.

Myers Jones -- Chief Executive Officer

Not to my knowledge. I don't think any of them were --

Chris Black -- Chief Financial Officer

No, I think it was a blend. There was -- it was a blend. There was one that was I believe was an SNC. Yeah.

Myers Jones -- Chief Executive Officer

OK. Exactly, that would -- excuse me, Tyler, it was one that would be coated as SNC, but everything else was outside of that portfolio.

Tyler Stafford -- Stephens Inc. -- Analyst

OK, thanks for the detail. The non-SNC healthcare loans declined this quarter, was that more of an intentional decline or the refinancing away that you mentioned earlier, Chris, and what's the outlook for that portfolio?

Chris Black -- Chief Financial Officer

Yeah, that's -- I think, that's probably the right characterization, Tyler and we're -- I think, we're in evaluation mode. As we said, we've obviously, there have been some public -- some losses that everyone has ascertained and coming from the healthcare portfolio. And so, we continue as Myers said, to evaluate and be really judicious and make sure that we're strategically aligned in how we want to move forward with that portfolio. I think we'll have more to talk about in the future, but I think, you know, particularly as we've seen, just overall, a couple of things.

The classified asset move up and that's been a couple of quarters move, and we watched the market. We watched lots of our peers and people in different markets. Looking at the macroeconomic, all these things together, at this point in the cycle, people, as I indicated earlier, covenant light deals or leveraging out of our portfolio and in other people's portfolios, caused us caution. We balance that against what Meyer said, the performance of the portfolio is as good as it's been, which those things all come to an end, right? All good things do come to an end for -- no matter who you are or where you are.

So, it's a period of evaluation for us, and just overall caution. And then, specifically, like we said, we're watching a couple of things.

Myers Jones -- Chief Executive Officer

Tyler, this is Myers. I think we've seen some conditions that Chris mentioned earlier out of that sector. And that's a request for higher leverage lower covenants coming out of that portfolio that we declined to do.

Tyler Stafford -- Stephens Inc. -- Analyst

OK, thanks for the detail there. Just on the capital return and the buyback, I guess, a question and answer earlier. Did you guys repurchase shares this quarter? In your prepared comments made me think that you did, but then, I didn't see any reference to activity in the earnings release or the deck, but I may have just missed it.

Chris Black -- Chief Financial Officer

So Tyler, yeah, I mentioned it. There was -- it was minimal de minimis, I'd say muted. Basically, the stock was above prescribed levels in our program. So I think, we're going to look at that and we'll likely look to adjust the repurchase program in the future.

So, it's more effective. So, that really wasn't intentional. Stock price moved above levels where we were in the market, and as you know, it's 10b5 program. We're somewhat handcuffed in what we can do, so, we'll sit back down with our advisors and work through what the next appropriate steps are there.

Tyler Stafford -- Stephens Inc. -- Analyst

OK, got it. That clears it up. And then just lastly, do you happen to have the average cost of the brokers in the public funds for the quarter?

Chris Black -- Chief Financial Officer

For the quarter -- haven't seen the run yet of the call report, but I'm looking, I've got some of the weekly sheets here. So I'd say public funds, probably in the -- I'd call it in the 240-ish ballpark plus or minus. Importantly, first couple of weeks we just kind of do the average here. First couple of weeks, I'd say you've had at least you know 15 basis points on average decline from the 3Q average in public funds and that's expected.

We've talked about that before. They're really sticky. They're tied to mostly index here in Tennessee -- local index here in Tennessee and that they governed by that. So, they do lag and we've seen that flow through.

And yes, brokered also?

Tyler Stafford -- Stephens Inc. -- Analyst

Yeah, brokered as well, if you have it.

Chris Black -- Chief Financial Officer

Yeah. So, a little bit -- it's a little bit lower. They typically run a few five, 10 basis points lower than public funds that got 2.30. And we've also seen some downtick.

And that's more tied to one, just the CD laddering of those portion broker funds that are CDs. And then secondly, you probably noticed just some stickiness relative to treasuries and the yield curve in general with broker funds. That seems -- I don't know if it's a fever or what is, but seems that have kind of broken toward the end of the third quarter, and it's getting to more rational level. So, those are two areas that we do think there will be some movement in relative to third quarter on the downside, which is also encouraging.

Hopefully, that answers your question.

Tyler Stafford -- Stephens Inc. -- Analyst

Yeah. No, that's perfect. Thanks, Chris. Bye.

Operator

Our next question comes from Laurie Hunsicker with Compass Point. Please go ahead.

Laurie Hunsicker -- Compass Point -- Analyst

Yeah. Hi, Myers, Chris. Good morning.

Myers Jones -- Chief Executive Officer

Good morning.

Laurie Hunsicker -- Compass Point -- Analyst

Just wondered if we could go back to net interest income for a moment. How much was the accretion income in this current quarter?

Chris Black -- Chief Financial Officer

So, it's in the press release.

Laurie Hunsicker -- Compass Point -- Analyst

I'm sorry. I must have missed that.

Chris Black -- Chief Financial Officer

OK. So let's see. Accretion for the third quarter of '19 is $123,000, two basis points, down from $174,000 last quarter, two basis points.

Laurie Hunsicker -- Compass Point -- Analyst

OK. Got it. And was there anything else within net interest income? In other words, did you have any kind of reversal in terms of a non-accrual that would have jumped interest income?

Chris Black -- Chief Financial Officer

Yeah. So again, same -- the average balance and yield tables that are in there. There is a decomposition of the total loan yields. So, contractual 5.28%, origination and other fee income, 26%.

That's basically flat from the previous quarter, down slightly. Accretion like I said, two basis points and zero for non-accrual collection.

Laurie Hunsicker -- Compass Point -- Analyst

OK, good. I just wanted to double-check that. OK. And then, in terms of tax rate going forward, what is the good rate to be using for 2020?

Chris Black -- Chief Financial Officer

Yeah. So I think 2020, that 2017 to 2019 ballpark. I mean, a modeling '18. It was a little bit below that this year, and you know, explanation for that continues to be just the noise that we had in first half of the year on a GAAP basis between -- we had the charge-offs related to the SNC that we've talked a lot about.

And then, we also had some of the retirement-related expenses, and so, those dragged down the tax rate for the full year. So, we continue to play catch-up a little bit on that.

Laurie Hunsicker -- Compass Point -- Analyst

OK, great. And then obviously, you gave some color around CECL. I just wondered, outside of the one-time adjustment your balance sheet is very different. Can you help us think about ongoing loan loss provisioning, as we look forward in 2020 what that's going to look like?

Chris Black -- Chief Financial Officer

Well, so I think, we're comfortable with where we are at 95 basis points. And I think, following total loan growth with everything else equal from what we see in the CECL models, which really frankly, isn't all that different than what we see in our current model. You know, we're looking at 18 months and I think outside of any either macroeconomic drivers to change our view or outside of any specific portfolio stress. We would expect basically to maintain this level adjusted for, and then, the provision adjusted for the loan growth -- total loan growth.

Laurie Hunsicker -- Compass Point -- Analyst

OK, great. And then just lastly, I want to go back to credit here. It was a big jump in substandard, you know, going from June to September. Of the $49.5 million, do you have a breakdown as to how much of that is C&I? And how much of that is healthcare in terms of raw dollars?

Chris Black -- Chief Financial Officer

Yeah. And so, and I know we'll have that in the queue. So at my hands, I don't -- I'm looking -- I've got folks in the room who can help. Raw dollars, I don't have.

But in terms of the increase, Laurie, it was a 100%. Well, maybe not 100%.

Myers Jones -- Chief Executive Officer

Very close.

Chris Black -- Chief Financial Officer

Vast majority would be C&I. These numbers will be in our -- Oh, I'm sorry, 50-50. That's my mischaracterization. These number will be --

Laurie Hunsicker -- Compass Point -- Analyst

OK. So I'm sorry -- because I mean, your construction -- you know, just looking back here over the last few quarters, you know, Kreos, had really no substandard construction has been de minimis. Resi has been bouncing around between four and five, which suggests that your C&I substandard could be upwards of $44 million or $45 million, which would put that standard rate on that bucket close to 8%. And so -- and obviously then within that, if the majority of that is healthcare, that's an even bigger number.

So, I just wanted to make sure that I've got those details correct or if I'm thinking -- if I should be thinking about it in a different way?

Chris Black -- Chief Financial Officer

Yeah. So, let -- Yeah, let me help. Well, we were doing sign language here. Let me try to get clear up a little bit.

So of the increase, the increase is almost exclusively C&I, like I said the first time. And then, more than 50% of that, of the increase is non-healthcare.

Laurie Hunsicker -- Compass Point -- Analyst

It's non-healthcare. OK. So, if I'm just looking and in -- you're talking linked quarter from June to September?

Chris Black -- Chief Financial Officer

That's correct. Talking about the increase that's right.

Laurie Hunsicker -- Compass Point -- Analyst

OK. I'm sorry 50%, so the -- so, if I'm looking, there was a $21 million increase in June to September, you're saying half of that was C&I?

Chris Black -- Chief Financial Officer

No, so the increase -- almost 100% of the increase is C&I.

Laurie Hunsicker -- Compass Point -- Analyst

It's C&I. OK. So that portfolio is, in fact, sitting at $45 million. So, that is 8% substandard.

And then of the increase, you said half of that was --

Chris Black -- Chief Financial Officer

We talked about, yeah, so we talked about the increase being C&I.

Laurie Hunsicker -- Compass Point -- Analyst

Being C&I. Correct. And then how much of that was healthcare?

Chris Black -- Chief Financial Officer

Less than half of that increase is healthcare.

Laurie Hunsicker -- Compass Point -- Analyst

OK. So that was $20 million last quarter. So you know, round numbers, let's call it $33 million? Or somewhere in that neighborhood?

Chris Black -- Chief Financial Officer

Laurie, I don't have in front of me. So, I don't want to -- that's -- if those are numbers, I think you could work through your numbers, and then when we put the Q out, we'll have more clarity.

Laurie Hunsicker -- Compass Point -- Analyst

OK. But I mean, that's a dramatic -- it's a dramatic increase to your substandard rate, right? That's putting you 12%, 13%. I'm just trying to get a little bit more color around that. You know what, I will follow-up with you offline.

I appreciate the color. Thanks so much.

Chris Black -- Chief Financial Officer

Thanks, Laurie.

Myers Jones -- Chief Executive Officer

Thanks.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Myers Jones for any closing remarks.

Myers Jones -- Chief Executive Officer

Really don't have any. Again, we thank you for participating today. Any questions that you may have later, feel free to give us a call. Otherwise, have a great day.

Operator

[Operator signoff]

Duration: 44 minutes

Call participants:

Myers Jones -- Chief Executive Officer

Chris Black -- Chief Financial Officer

Stephen Scouten -- Sandler O'Neill

Brett Rabatin -- Piper Jaffray -- Analyst

Tyler Stafford -- Stephens Inc. -- Analyst

Laurie Hunsicker -- Compass Point -- Analyst

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